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Formation of a limited liability company in Russia: features and particularities

Legal advice.

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What is a LLC? What is the difference between a corporation and a LLC? (And what is the difference between the shareholders and the members of a limited liability company)? What do we know about formation of a limited liability company in Russia? – These are evidently very important and actual questions nowadays.

To start with the topic, let’s see what a limited liability company is and let’s learn some features and peculiar properties of the formation of a limited liability company in Russia. A limited liability company (LLC) is a business organization, the legal capital is divided into shares according to the constituent documents. A LLC has separate property and may have civil rights and obligations.

What is the economic meaning of a limited liability company? – Let’s study the question.

A Limited Liability Company is a commercial organization. That means that the main goal of its activities is making profit; the profits are distributes among the participants of the company.

It has to be noticed that in private economic practice a LLC is the most popular legal form of business organizations.

Unlike state and municipal enterprises, where the founders have the right to the property or other proprietary right, a limited liability company (as well as other types of economic unions, business partnerships and production cooperatives) is characterized by the fact that their members have rights in personam regarding this.

A limited liability company is characterized by the fact that the current (operational) management in the community (as opposed to partnerships) is transmitted to the executive body, appointed by the founders and made of themselves or of other persons. The participants of the company have the rights for strategic management of the company, which is carried out by them through periodic general meetings of members. Also some participants may be granted additional rights.

Unlike in corporations, the profit of limited liability companies may be divided between the members of the company not only in proportion to their shares in the authorized capital of the company, but also otherwise in accordance with the Charter of the company (if other conditions are provided by the Charter).

In contrast to participants of a corporation (shareholders), a member of a limited liability company can not just sell (or otherwise assign) his share in the authorized capital of the company, but also leave the company, demanding a payment of the costs of a part of the property, according to his share in the authorized capital of the company if this is provided by the Charter of the company. The participants of a limited liability company, as well as the company itself have a preferential right to purchase the share of one of the participants in case of his intention to sell his share to third parties. The company's charter also may provide a ban on alienation of members’ share to third parties.

Speaking about limited liability companies in Russia we should note the following. The Russian legislation imposes much less procedural requirements for the operation of a limited liability company (including general meetings, information disclosure, etc.) than for the activities of a corporation. This is due to the fact that LLCs don’t put their shares in the public market of capital and to the fact that the number of participants in a LLC can not be too large (not more than fifty persons, in accordance with the Law "On Limited Liability Companies", otherwise it shall be transformed into an open joint stock company).